The Financial Report - Volume 4, No. 9 • May 2015 (Global)

by DLA Piper


Discussion and Analysis

News from the Americas

News from Asia and the Pacific

News from Europe

Global Regulators

US Securities and Exchange Commission Developments

US Commodity Futures Trading Commission Developments

US Banking Developments

US Judicial Developments

US Exchanges and Self-Regulatory Organizations

Discussion and Analysis

Securities and investment advisory services offered through . . . .

That phrase is ubiquitous among small and “independent” financial services firms, regularly appearing in 6-point or smaller font at the foot of business cards and websites. It stands as a glaring testament to the pervasive misunderstanding regarding fundamental broker-dealer and investment adviser registration and regulatory requirements, even among firms actively involved in rendering financial services.

One website’s home page states: “Smith Financial Group is a boutique investment management and financial services firm.” (This is not the actual name of the firm.) Another firm, “Jones Wealth Management” (again, not the actual name), uses the tagline “Financially Empowering” and proudly states on its website that “as an independent financial advisory firm we are brand-neutral and free to evaluate and recommend the financial products we believe are best for you. Unlike captive firms, we are not limited to a proprietary product line . . . .” Both Smith and Jones each disclose, on their respective home pages, that phrase: “Securities and advisory services offered through XYZ Advisors LLC, member FINRA/SIPC.”

It is almost as if certain independent financial services professionals believe, mistakenly, that registration as an investment adviser or as a broker-dealer is an asset which can be leased or licensed by a registered firm to one that is not registered.

In a December 8, 2005 letter addressed to the American Bar Association’s Subcommittee on Private Investment Entities, the staff of the SEC’s Division of Investment Management outlined certain conditions which must be present to enable one firm to “rely upon” the registration of another firm and thereby avoid the need to separately register as an investment adviser. See that letter here. This position was reinforced in a January 18, 2012 Staff letter to the ABA Subcommittee on Hedge Funds, which may be seen here.

The SEC Staff noted that Form ADV (the primary form used to apply for registration as an investment adviser) “was not designed to combine information about separately formed advisers that conduct different advisory businesses, even if those advisers are related to each other because of a control relationship.” The Staff, however, recognized that in certain specific and narrowly construed circumstances, it may be appropriate for certain advisers to use a single registration (i.e., to register on a single Form ADV), rather than separately register. The crux, however, is that the registered firm and the “relying firm” must be conducting a “single advisory business.”

In the 2005 and 2012 Letters, the Staff laid out the conditions under which a non-registrant, such as a “special purpose vehicle” or “SPV” could “rely upon” the registration of an SEC-registered investment adviser:

i. the investment adviser to a private fund establishes the SPV to act as the private fund’s general partner or managing member

ii. the SPV’s formation documents designate the investment adviser to manage the private fund’s assets

iii. all of the investment advisory activities of the SPV are subject to the Investment Advisers Act and the rules thereunder, and the SPV is subject to examination by the SEC and

iv. the registered adviser subjects the SPV, its employees and persons acting on its behalf to the registered adviser’s supervision and control and, therefore, the SPV, all of its employees and the persons acting on its behalf are “persons associated with” the registered adviser (as defined in Section 202(a)(17) of the Investment Advisers Act).

The last condition, of course, is the most problematic for both the registered firm and the non-registered firm hoping to “rely upon” the other’s registration. Often, the registered firm allowing its “licenses” or “registration” to be borrowed or utilized by independent firms has little, if any, ability to supervise and control the activities of persons associated with the non-registered firm, who may be geographically remote from the supervisory personnel of the registered firm.

To be clear, we are not suggesting that the SEC Staff rescind or cut back on the relief granted to relying advisers or any similar relief granted in practice by SEC or FINRA Staff to independent non-registered firms conducting securities services “through” a registered broker-dealer, and we are not endorsing increased regulation or enforcement of independent firms which desperately try to minimize the often substantial costs associated with regulatory compliance by “affiliating” with a registrant instead of obtaining separate registration. We would, however, advise firms which hold themselves out as independent providers of financial services while relying upon the registration of another entity to consult with their legal and regulatory advisers about the nature and extent of the risks associated with not being independently registered.

News from the Americas

US OFR studies high-frequency trading. The US Treasury Department’s Office of Financial Research published “Tick Size Constraints, High-Frequency Trading, and Liquidity,” which analyzes the effect nanosecond trading has on the financial system. (5/5/2015) OFR press release.

US bill would treat municipal securities as high-quality assets. US Congressional Representatives Luke Messer and Carolyn Maloney introduced legislation that would require US banking regulators to include municipal bonds under the Liquidity Coverage Ratio, which requires banks to maintain a minimum amount of liquid assets. (5/4/2015) Messer press release.

CSA guidance for proxy advisory firms. The Canadian Securities Administrators (CSA) adopted National Policy 25-201 “Guidance for Proxy Advisory Firms.” The policy provides guidance on recommended practices and disclosure for proxy advisory firms to promote transparency in the services they provide to clients and to foster an understanding among market participants about proxy advisory activities. The guidance addresses the identification, management and mitigation of actual or potential conflicts of interest; the transparency and accuracy of vote recommendations; the development of proxy voting guidelines; and communications matters. (4/30/2015) CSA press release.

US Labor Department proposes fiduciary standard rules. The US Labor Department proposed rules requiring retirement advisors to put their clients’ best interests first. Comments should be submitted by July 6, 2015. (4/14/2015) Labor Department press release.

OSC reports on fixed income markets. The Ontario Securities Commission (OSC) published “The Canadian Fixed Income Market Report” and “OSC Staff Notice 21-708 - OSC Staff Report on the Canadian Fixed Income Market and Next Steps to Enhance Regulation and Transparency of Fixed Income Markets.” These materials summarize the OSC’s study of the fixed income markets and set out the steps that the OSC will take to enhance the transparency and regulation of fixed income markets. (4/23/2015) OSC press release.

OSC adopts registration exemptions for certain US brokers and advisers. The OSC published proposed OSC Rule 32-505, “Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing US Clients from Ontario.” The proposed rule, which has been published on an expedited basis, provides exemptions from the relevant dealer and adviser registration requirements under the Securities Act (Ontario), subject to certain conditions, for US broker-dealers and advisers that are trading to, with, or on behalf of, clients that are resident in the USA. (4/23/2015) OSC staff notice.

CSA proposes expansion of passport system. The CSA proposed the expansion of the passport system to include applications to cease to be a reporting issuer and cease trade orders resulting from the failure to file continuous disclosure documents. The CSA has developed two proposed interface policies: National Policy 11-206 “Process for Cease to be a Reporting Issuer Applications” and National Policy 11-207 “Failure-to-File Cease Trade Orders and Revocations under Passport.” These policies streamline the processes for those wanting to end their status as a reporting issuer or wish to revoke a failure-to-file cease trade order in both passport jurisdictions and Ontario. Comments should be submitted by June 15, 2015. (4/16/2015) CSA press release.

OSC roundtable discussion on proposed whistleblower program. The OSC announced it will hold a roundtable on June 9, 2015 to further explore the issues raised in OSC Staff Consultation Paper 15-401, which proposed a new whistleblower program to encourage the reporting of serious misconduct of Ontario securities law to the OSC. (4/14/2015) OSC press release.

News from Asia and the Pacific

ASIC repeals select market integrity rules. The Australian Securities & Investments Commission (ASIC) announced the repeal of a number of obligations under the ASIC market integrity rules to reduce the compliance burden on market participants. The changes remove rules that: (1) require certain market participants to notify ASIC of the details of their professional indemnity insurance; (2) require certain market participants to obtain ASIC’s consent before sharing business connections; and (3) restrict certain transactions such as special crossings during takeovers, schemes of arrangement and buy-backs. (5/4/2015) ASIC press release.

Stronger Super regime update. The ASIC provided an update on aspects of the Stronger Super regime. The start date for portfolio holdings disclosure reporting and choice product dashboard requirements will be deferred to July 1, 2016, to allow the Federal Government further time to consult on the detail of the requirements. Current interim relief so that licensees do not have to provide a hard copy of the product dashboard with the periodic statement has been extended to July 1, 2016. The start date for certain disclosures required pursuant to subsection 29QB(1) of the Superannuation Industry (Supervision) Act for standard employer-sponsored sub-plans has also been deferred until July 1, 2016. ASIC has also extended the interim relief in relation to long-term performance reporting in Class Order 10/630 to December 31, 2015. (5/1/2015) ASIC press release.

Backdoor listings. Bloomberg discussed Australia’s active encouragement of backdoor listings by overseas companies. Such listings, in which a private company buys a publicly traded one, benefits the shareholders of struggling companies by providing value to what may have otherwise been worthless shares, and it allows the acquiring company to become publicly listed without the expense of an initial public offering. (4/30/2015) Backdoor listings.

Hong Kong discusses proper disclosure of inside information by listing applicants. The Hong Kong Securities and Futures Commission (SFC) published the latest edition of its Corporate Regulation Newsletter which highlights the importance of the proper disclosure of inside information by listing applicants and listed companies. (4/29/2015) SFC press release.

MAS adopts notices making certain retail investments easier. The Monetary Authority of Singapore (MAS) announced the adoption of new notices which make it easier for retail investors to invest in funds that employ derivatives on a limited basis. (4/29/2015) MAS press release.

MAS feedback response to AML amendments. The MAS published its responses to the feedback it received to its consultation on proposed amendments to the MAS Notices on “Prevention of Money Laundering and Countering the Financing of Terrorism.” MAS’s response provides additional, detailed explanation on its supervisory expectations and additional examples for key topics such as enterprise-wide risk assessment, simplified customer due diligence (CDD) measures, as well as enhanced CDD measures and information to be collected from customers. (4/24/2015) Feedback response.

MAS proposes licensing exemption for remote clearing members. The MAS is consulting on proposed amendments that would exempt from its licensing requirements clearing members which are based overseas and do not have physical operations in Singapore, who conduct their activities outside Singapore and only serve overseas-based customers. Comments should be submitted by May 15, 2015. (4/24/2015) MAS consultation.

ASIC proposes repeal of redundant class orders. The ASIC released a consultation paper proposing to repeal 59 class orders that are due to expire between 2015 and 2022 and which, in ASIC’s opinion, no longer serve a regulatory purpose. Comments should be submitted by June 17, 2015. (4/17/2015) ASIC press release.

ASIC update on Wealth Management Project. The ASIC provided an update on its Wealth Management Project, which focuses on the conduct of the largest financial advice firms. ASIC is investigating multiple instances of licensees charging clients for financial advice, including annual advice reviews, where the advice was not provided. Most of the fees have been charged as part of a client’s service agreement with their financial adviser. Under this project ASIC is carrying a number of investigations and is conducting a range of proactive risk-based surveillances with particular focus on compliance in large financial institutions. (4/16/2015) ASIC press release.

News from Europe

Risks to EU financial system have intensified. The Joint Committee of the European Supervisory Authorities published its fifth report on risks and vulnerabilities in the EU financial system. The report found that in the past six months, risks affecting the EU financial system have not changed in substance but have intensified. The major risks include low growth, low inflation, and volatile asset prices; search for yield behavior exacerbated by potential rebounds; deterioration in the conduct of business; and increased concern about cyber-attacks. (5/5/2015) ESMA notice.

EBA updates report on Additional Tier 1 capital instruments. The European Banking Authority (EBA) updated its October 7, 2014 report on the monitoring of Additional Tier 1 (AT1) capital instruments issued by EU institutions. The report illustrates the EBA’s views on clauses that it recommends be avoided in the terms and conditions of AT1 instruments. In particular, the report clarifies the EBA’s position on acceptable triggers for regulatory calls and on the conditions for the inclusion of tax gross-up provisions in the terms and conditions of AT1 instruments. (5/4/2015) EBA press release.

PRA policy statement regarding international banks. The UK Prudential Regulation Authority (PRA) issued a policy statement on the Branch Return rule and the final form of the Branch Return as they apply to firms operating in the United Kingdom which are not UK-headquartered firms. It follows up on the proposal to introduce a twice-yearly Branch Return, which would provide information about the UK activities of these firms. (4/30/2015) PRA press release.

PRA consults on Handbook revisions. The PRA published a consultation paper which would redraft certain modules of the PRA Handbook. It is the third in a planned series of consultations aimed at reshaping Handbook material inherited from the Financial Services Authority. Among other things, this consultation addresses passporting, regulatory reporting, internal governance, and the internal capital adequacy assessment process. Comments should be submitted by June 30, 2015. (4/30/2015) PRA press release.

ESMA recognizes third-country CCPs. ESMA recognized ten third-country central counter-parties (CCPs) established in Australia, Hong Kong, Japan and Singapore. The recognition by ESMA allows third country CCPs to provide clearing services to clearing members or trading venues established in the EU. (4/29/2015) ESMA notice.

EBA consults on data template for identifying global systemically relevant institutions. The EBA launched a consultation to update its data template for the identification of global systemically relevant institutions. The need for this revision was prompted by the new data template and some minor revisions introduced by the Basel Committee on Banking Supervision. Comments should be submitted by May 20, 2015. (4/29/2015) EBA press release.

FCA guidance on financial crime systems and controls. The UK Financial Conduct Authority (FCA) published finalized guidance on financial crime systems and controls. The guidance is effective immediately. (4/27/2015) FCA press release.

ESMA updates EMIR reporting guidance. ESMA issued the 13th update of its Q&A document on the implementation of the European Markets Infrastructure Regulation (EMIR). This update relates to the second level of the EMIR validation specifications to be commonly applied by the Trade Repositories (TRs) to ensure that reporting is performed according to the EMIR regime. ESMA expects the TRs to be able to implement the validation by the end October 2015. (4/27/2015) ESMA notice.

ESMA consults on draft guidelines for the assessment of competence to provide financial advice. ESMA launched a consultation on draft guidelines specifying criteria for the assessment of knowledge and competence of natural persons in investment firms that provide investment advice or information about financial instruments, investment services or ancillary services to clients. Comments should be submitted by July 10, 2015. (4/23/2015) ESMA notice.

Bank of England supervisory statement on Solvency II. The Bank of England published a supervisory statement on applying the European Insurance and Occupational Pensions Authority’s Set 1 Guidelines to PRA authorized firms. (4/22/2015) Bank of England press release.

ESMA seeks information on virtual currencies. ESMA issued a call for evidence on investments using virtual currency or distributed ledger technology. ESMA seeks information and views from stakeholders on new developments in how virtual currency technology is used to issue, buy and sell and record ownership of securities. Comments should be submitted by July 21, 2015. (4/22/2015) ESMA notice.

EBA workshop on proportionality measures for regulatory purposes. On July 3,2015, the EBA will host its second workshop on the application of the proportionality principle in the EU banking supervisory framework, covering the latest institutional and regulatory reforms. Experts from the supervisory community, the financial industry, EU institutions and academia will gather to discuss and assess progress made since the last workshop on the application of the proportionality principle. Issues will include financial regulatory complexity and the role of industry. (4/20/2015) EBA press release.

European regulators to hold third consumer protection day. The Joint Committee of the European Supervisory Authorities, which consists of ESMA, the EBA and the EIOPA, announced that the third joint ESA consumer protection day will focus on conduct risk, the next decade in finance, and the growing digitalization of financial services. Consumer Protection Day will be held on June 3, 2015 in Frankfurt am Main, Germany, and will bring together consumer/investor organizations, national regulators, EU institutions, academics and key market participants. (4/20/2015) ESMA notice.

EBA assessment of cross-border supervision. The EBA published its annual assessment of EU colleges of supervisors, responsible for the oversight of cross border banks. The report assesses how colleges have functioned during 2014 and identifies key activities for the effective oversight of EU cross border banking groups in 2015. The report introduces items for supervisory attention in 2015, including conduct risk, information technology risks and the need for effective decisions on recovery plans. (4/16/2015) EBA press release.

ESMA updates data on credit rating agency performance. ESMA published its latest set of semi-annual statistical data on the performance of credit ratings, including transition matrices and default rates. The dataset covers the period from July 1, 2014 to December 31, 2014. (4/15/2015) ESMA notice.

FCA guidance for multilateral trading facilities. The FCA published finalized guidance for multilateral trading facilities (MTF). The finalized guidance sets out the key requirements and the FCA’s Good Practice Observations relating to MTF operator rulebooks. In particular a firm operating an MTF must have transparent and non-discretionary rules and procedures for fair and orderly trading. (4/15/2015) FCA press release.

Global Regulators

Algorithmic trading risks assessment. Senior financial supervisors from 10 countries issued a report discussing the risks associated with algorithmic trading and identifying principles and questions for supervisors and supervised firms to consider. (4/30/3015) New York Federal Reserve press release.

Basel Committee update on adoption of Basel standards. The Basel Committee on Banking Supervision issued an updated progress report on the adoption of the Basel regulatory framework as of March 31, 2015. (4/27/2015) BIS press release.

Basel Committee removes selected national discretions and provides guidance on funding valuation adjustment. The Basel Committee on Banking Supervision has agreed to remove certain national discretions from the Basel capital framework. They include treatment of past-due loans; definition of retail exposures; transitional arrangements for corporate, sovereign, bank and retail exposures; and rating structure standards for wholesale exposures. The Basel Committee also issued a response to a frequently asked question (FAQ) on funding valuation adjustment. The FAQ notes that a bank should continue to derecognize its debit valuation adjustment in full, whether or not it has adopted a funding valuation-type adjustment. (4/21/2015) BIS press release.

US Securities and Exchange Commission Developments

Proposed Rules

Cross-border swaps. The US Securities and Exchange Commission (SEC) proposed rules concerning the application of certain requirements to security-based swap transactions connected with a non-US person’s dealing activity in the United States. If adopted, the rules would require a non-US firm using those in the US to conduct a transaction in connection with its dealing activity to count that transaction when deciding if it must register as a security-based swap dealer. Such transactions would also be subject to Regulation SBSR and, if the non-US firm is a registered security-based swap dealer, to the Dodd-Frank Act’s external business conduct standards. Comments should be submitted within 60 days after publication in the Federal Register, which is expected shortly. (4/29/2015) SEC press release.

Pay versus performance. The SEC proposed rules requiring companies to disclose the relationship between executive compensation and the financial performance of a company. If adopted, the new rule would require issuers to disclose executive pay and performance information for itself and companies in a peer group in a table and to tag the information in an interactive data format. Comments should be submitted within 60 days after publication in the Federal Register, which is expected shortly. (4/29/2015) SEC press release.


Cybersecurity for investment managers. Cybersecurity guidance was issued by the Division of Investment Management to investment companies and investment advisers. (4/29/2015) Guidance.

Money market guidance. The Division of Investment Management issued two guidance documents concerning the SEC’s July 2014 money market reforms, “2014 Money Market Fund Reform Frequently Asked Questions” and “Valuation Guidance Frequently Asked Questions.” (4/22/2015)

OCIE risk alert. A risk alert on the SEC’s initiative to examine registered investment company complexes that have not previously been examined was issued by the Office of Compliance Inspections and Examinations. These examination will focus on compliance; annual contract review; advertising and distribution; portfolio valuation; and leverage. (4/20/2015) Risk Alert.

Selected Enforcement Actions

Compliance officer to receive whistleblower award. The SEC announced its second whistleblower award to someone with an internal audit or compliance responsibilities. The Commission awarded over US$1 million to a compliance professional who provided information that assisted the SEC in an enforcement action against the whistleblower’s company. The compliance officer had a reasonable basis to believe that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors. (4/22/2015) SEC press release.

Willful breach of fiduciary duty lands investment advisor with US$25,000 fine. A SEC Administrative Law Judge (ALJ) found that respondent David J. Montanino violated subsections (1) and (2) of Section 206 of the Investment Advisors Act but did not commit violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, or Section 206(4) of the Advisers Act. The Division of Enforcement alleged that Montanino deceived and defrauded clients into investing in American Private Equity; however, the ALJ found that Montanino did not intend to deceive those clients. (4/16/2015) In the Matter of David J. Montanino, SEC Release No. ID-773.

Speeches and Testimony

House Financial Services subcommittee testimony. Testifying before a House subcommittee, Chair Mary Jo White explained the SEC’s 2016 budget request. Under the proposed budget the agency would hire additional staff to increase examination coverage of investment advisers and other entities who service retail and institutional investors; improve its information technology; and strengthen the agency’s economic and risk analysis functions. (4/15/2015) White testimony.

Commissioner Gallagher discusses the financial system. In an appearance before a Harvard Law School symposium, Commissioner Daniel M. Gallagher questioned the goals of organizations such as the Financial Stability Board and the Basel Committee. He called upon these entities to return to their original pre-financial crisis purposes of facilitating cooperation among regulators from different jurisdictions (4/15/2015) Gallagher speech.

Commissioner Aguilar discusses enforcement at Securities Administrators Association Conference. At the North American Securities Administrators Association conference, Commissioner Luis A. Aguilar discussed the SEC’s Complex Financial Instruments Unit, which focuses on structured and new products sold to retail investors. (4/14/2015) Aguilar speech.

Other Developments

Equity Market Structure meeting. The Equity Market Structure Advisory Committee announced it will hold a public meeting on May 13, 2015. (4/23/2015) SEC Release No. 34-74793.

Compliance Outreach Program. The SEC published the schedule for its 2015 Compliance Outreach Program regional seminars. Jointly sponsored by the Office of Compliance Inspections and Examinations, Division of Investment Management and Division of Enforcement’s Asset Management Unit, the programs present the staff’s views regarding risks, priorities and deficiencies observed in examinations or investigations. (4/30/2015) SEC press release.

Withdrawn CDIs. Two Compliance and Disclosure Interpretations (CDI) related to the Trust Indenture Act were withdrawn. CDI 202.01 and 203.01 both concerned beneficial ownership interests in a trust administered pursuant to a “pooling and servicing agreement.” (4/24/2014) Withdrawn CDIs.

Securities-based swaps research. “Single-Name Corporate Credit Default Swaps: Background Data Analysis on Voluntary Clearing Activity” was published by the Division of Economic and Risk Analysis. (4/24/2015) Report.

Shareholder proposal to closed-end fund may not be excluded as too vague. The Division of Investment Management denied Clough Global Equity Fund’s request for no-action relief to exclude a shareholder proposal. While the Division found some basis for the view that the proposal may be excluded under Rules 14a-8(i)(2) and 14a-8(i)(6), those defects could be cured if the proposal were revised to state that the fund’s board should take the steps necessary to liquidate or convert the fund. However, the Division disagreed with the belief that the proposal is so vague that it could be excluded under Rule 14a-8(i)(3). (4/16/2015) Response.

SEC-FINRA report on senior investor initiative. The SEC and the Financial Industry Regulatory Authority (FINRA) published a report on the policies and procedures brokers and dealers should consider when meeting with investors preparing for retirement. The report focuses on the types of securities purchased by senior investors, suitability, training, marketing, communications, use of designations, account documentation, disclosures, customer complaints and supervision. (4/15/2015) SEC press release.

US Commodity Futures Trading Commission Developments

Proposed Rules

End-User exemption. The Commodity Futures Trading Commission (CFTC) proposed a rule that would reduce reporting and recordkeeping requirements for trade option counterparties that are neither swap dealers nor major swap participants (Non-SD/MSPs), including commercial end-users. If adopted, the proposed rule would eliminate the Form TO annual notice reporting requirement for otherwise unreported trade options. A Non-SD/MSP would only need to provide notice to the Division of Market Oversight (DMO) within 30 days after entering into trade options having an aggregate notional value in excess of US$1 billion in any calendar year. Alternatively, a Non-SD/MSP would provide notice by email to DMO that it reasonably expects to enter into trade options having an aggregate notional value in excess of US$1 billion during any calendar year. Comments should be submitted within 30 days after publication in the Federal Register, which is expected shortly. (4/30/2015) CFTC press release.


End-user guidance. The Division of Clearing and Risk published a letter interpreting Section 2(h)(7)(C)(iii) of the Commodity Exchange Act to clarify that a securitization special purpose vehicle that is wholly-owned by, and consolidated with, an entity described in Section 2(h)(7)(C)(iii) of the Act qualifies as a captive finance company and, therefore, is eligible to elect the end-user exception from a clearing requirement determination issued by the CFTC under Section 2(h) of the Act. (5/4/2015) CFTC press release.

SEF guidance. DMO published guidance to swap execution facilities (SEF) regarding the calculation of projected operating costs for purposes of complying with the financial resource requirements under SEF Core Principle 13 and CFTC Regulation 13.1303. The guidance notes the differences between variable commissions and fixed salaries or compensation. (4/23/2015) CFTC press release.

Other Developments

Market Risk Advisory Committee. The CFTC’s Market Risk Advisory Committee will meet on June 2, 2015, to discuss issues related to cybersecurity threats and market liquidity. (5/5/2015) CFTC press release.

Global Markets Advisory Committee. The Global Markets Advisory Committee will meet on May 14, 2015, to consider issues related to assessing clearinghouse safeguards and the CFTC’s proposal on the cross-border application of its margin requirements for uncleared swaps. The meeting will consist of two panels, one on clearinghouse capital contributions and clearinghouse stress testing and the other on the CFTC’s proposal regarding cross-border application of its margin requirements for uncleared swaps. (4/28/2015) CFTC press release.

Erroneous trade reporting relief. DMO and the Division of Clearing and Risk issued a no-action letter providing time-limited relief to SEFs and designated contract markets to allow trades voided as a result of clerical or operational errors or errors discovered after a trade has been cleared to be corrected. Separately, DMO issued a no-action letter providing relief to SEFs from certain requirements concerning trade confirmations required from SEFs for non-cleared swaps. (4/22/2015) CFTC press release.

Charges filed against alleged flash crash trader. The CFTC announced the filing of civil and criminal charges against Nav Sarao Futures Limited PLC and Navinder Singh Sarao for unlawfully manipulating, attempting to manipulate, and spoofing with regard to the E-mini S&P 500 near month futures contract. The CFTC alleges that for over five years, defendants used a variety of large, aggressive, and persistent spoofing tactics and were exceptionally active in the E-mini S&P on May 6, 2010, commonly known as the flash crash day. The CFTC alleges defendants utilized a layering algorithm for over two hours immediately prior to the precipitous drop in the E-mini S&P price, applying close to $200 million worth of persistent downward pressure on the E-mini S&P price, contributing to the market conditions that led to the flash crash. The CFTC further alleges defendants engaged in a variety of other manual spoofing techniques to exacerbate the price impact of the layering algorithm. (4/21/2015) CFTC press release.

US Banking Developments

The Large Institution Supervision Coordinating Committee supervisory program. The Federal Reserve Board published additional information on the operating structure of the Large Institution Supervision Coordinating Committee (LISCC) supervisory program. The LISCC supervises the largest, most systemically important financial institutions. Its supervisory program evaluates both the safety and soundness of individual large financial institutions and the risks posed by those institutions. (4/17/2015) Federal Reserve Board press release.

US Judicial Developments

Claim that SEC admin proceeding is unconstitutional dismissed. Barbara Duka, a former rating agency executive, filed suit claiming that the SEC’s administrative enforcement action against her was unconstitutional because administrative law judges (ALJs) are insulated from Presidential oversight. After finding that it has subject matter jurisdiction over the suit, the US District Court for the Southern District of New York held that Duka is not entitled to a preliminary injunction because she is unlikely to succeed on the merits of her constitutional claim. Congressional restrictions on the President’s ability to remove “quasi-judicial” ALJs are unlikely to interfere with the President’s ability to perform his executive duties. (4/15/2015) Duka v. SEC.

Free from injunction, Wal-Mart can omit proxy proposal. The US Court of Appeals for the Third Circuit reversed and vacated a district court order enjoining Wal-Mart Stores, Inc. from relying on SEC Rule 14a-8’s “ordinary business exception” to exclude a proxy proposal that would require a Wal-Mart board committee to establish policies on whether Wal-Mart should sell a product that “especially endangers public safety” or is “considered by many offensive to the family and community values.” The Third Circuit order permits Wal-Mart to exclude the proposal from its 2015 proxy. (4/14/2015) Trinity Wall Street v. Wal-Mart Stores, Inc.

US Exchanges and Self-Regulatory Organizations

FINRA puts CARDS on hold. The prepared testimony which FINRA CEO Richard Ketchum gave before a House Financial Services subcommittee was summarized by Reuters. Ketchum told the subcommittee FINRA will not proceed with its Comprehensive Automated Risk Data System until industry concerns have been resolved. (4/30/2015) Ketchum Testimony.

FINRA takes action for fraud against the elderly. FINRA announced that Avenir Financial Group, its chief executive officer and a registered representative consented to an order halting further fraudulent sales of equity interests in the firm and promissory notes pending a hearing on fraud charges relating to the same offerings. The sales, which occurred from October 2013 to the present, were often to elderly customers. FINRA obtained the order based on its concern regarding ongoing customer harm and depletion of investor assets prior to the completion of a formal disciplinary proceeding against the firm and the individuals. FINRA also permanently barred another registered representative from the securities industry for fraud and for improperly using investor funds for personal expenses. The registered representative neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. (4/27/2015) FINRA press release.

Seniors helpline. FINRA has launched a toll-free securities helpline for seniors to provide assistance from knowledgeable FINRA staff. (4/20/2015) FINRA press release.

Conduct rules for municipal advisors. The Municipal Securities Rulemaking Board (MSRB) announced that it has submitted for SEC approval proposed Rule G-41, which would establish core standards of conduct for municipal advisors, provide guidance on the obligations and prohibitions that accompany their fiduciary duties and clarify their duties of care and fair dealing to all clients. (4/15/2015) MSRB press release.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

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